B is corrent. Since the rate is denominated in a foreign currency at a fixed 840,000 (LCU), fluctuations in the exchange rates will produce foreign currency gains (losses). The increase (decrease) in expected functional currency cash flows is a foreign currency transaction gain (loss) to be included in income in the period during which the exchange rate changes. At December 31, year 2, changes in the exchange rates produce a recognized gain of $20,000 ($140,000 – $120,000). At the repayment date (July 1, year 3) changes in the exchange rate resulted in a realized loss of $35,000 computed as follows:
Received from borrower 840,000 LCU ÷ 8 LCU for each $1 = $105,000
A is incorrect. Since the rate is denominated in a foreign currency at a fixed 840,000 (LCU), fluctuations in the exchange rates will produce foreign currency gains (losses). The increase (decrease) in expected functional currency cash flows is a foreign currency transaction gain (loss) to be included in income in the period during which the exchange rate changes. At December 31, year 2, changes in the exchange rates produce a recognized gain of $20,000 ($140,000 – $120,000). At the repayment date (July 1, year 3) changes in the exchange rate resulted in a realized loss of $35,000 computed as follows:
Received from borrower 840,000 LCU ÷ 8 LCU for each $1 = $105,000
C is incorrect. Since the rate is denominated in a foreign currency at a fixed 840,000 (LCU), fluctuations in the exchange rates will produce foreign currency gains (losses). The increase (decrease) in expected functional currency cash flows is a foreign currency transaction gain (loss) to be included in income in the period during which the exchange rate changes. At December 31, year 2, changes in the exchange rates produce a recognized gain of $20,000 ($140,000 – $120,000). At the repayment date (July 1, year 3) changes in the exchange rate resulted in a realized loss of $35,000 computed as follows:
Received from borrower 840,000 LCU ÷ 8 LCU for each $1 = $105,000
A is incorrect. Since the rate is denominated in a foreign currency at a fixed 840,000 (LCU), fluctuations in the exchange rates will produce foreign currency gains (losses). The increase (decrease) in expected functional currency cash flows is a foreign currency transaction gain (loss) to be included in income in the period during which the exchange rate changes. At December 31, year 2, changes in the exchange rates produce a recognized gain of $20,000 ($140,000 – $120,000). At the repayment date (July 1, year 3) changes in the exchange rate resulted in a realized loss of $35,000 computed as follows:
Received from borrower 840,000 LCU ÷ 8 LCU for each $1 = $105,000
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